Learnbonds UK

Best Cheap Loan Providers in 2020

23. January 2020

If you’re in the lookout for financing – it is crucial that you choose a loan package that comes with a competitive rate of interest. However, this is no easy feat, as whether or not you are able to get a cheap loan will depend on a number of key variables. For example, certain types of loans – such as personal loans and homeowner loans, typically come with the lowest rate of APR. Furthermore, and perhaps most importantly, your underlying credit profile will dictate how much you end up paying.

In other words, the healthier your financial standing is in the eyes of the lender, the lower your interest will be. With that being said, we have compiled a comprehensive guide on the Best Cheap Loans of 2020.  On top of listing the most competitive loan providers currently operating in the UK lending market, we have also provided a full breakdown of what you need to do to get a cheap loan, as well as whether or not you are likely to be eligible for the most competitive deals.

 

Table of Contents

     

    Note: For the purpose of this guide, we are going to make the assumption that you are in possession of a good credit score. If you aren’t – and you’re subsequently forced to use payday loan lenders, then you won’t be able to obtain a cheap loan deal. On the contrary, your APR rates will have a direct correlation to your bad credit.
    Pros and cons of cheap loans

    The Pros

    • Borrow funds at a cheap rate of interest
    • Don’t get crippled by high APR rates
    • Perfect if you have a good or excellent credit profile
    • Benefit from a larger loan size if you have a good financial standing
    • Always repaying your loan on time will likely improve your credit score further

    The Cons

    • Cheap loans not available for those with bad credit

    How do Cheap Loans work? Read our step-by-step guide

    The specific process of obtaining a cheap loan will of course vary depending on the type of loan you opt for. For example, the process of obtaining a cheap homeowner loan is likely to differ slightly from that of car financing. However, if you are looking to get the very best rates without putting your assets up as collateral, then you will be best off going with a traditional personal loan. The overarching reason for this is that personal loans usually come with the most competitive rates of interest – which is exactly what you are looking to achieve in your search for a cheap loan.

    With that being said, we’ve listed the general process of obtaining a cheap loan via a personal loan provider.

    Note: If you decide to use a cheap loan provider that we have not recommended below, then you need to ensure that the lender is regulated by the FCA. If they aren’t, then the loan company is operating in the UK illegally. .

    Step 1: Find a cheap loan provider

    In order to get the ball rolling, you will need to find a loan provider that typically offers competitive APR rates. The obvious starting point is to use a loan comparison website. In doing so, the platform will list the most competitive loan offers currently in the market – based on your individual credit profile. Alternatively, it is well worth considering the three cheap loan providers that we discuss in the next section.

    Step 2: Start the application

    Once you arrive at your chosen lender’s website, you will then need to enter the size of the loan that you require, as well as your preferred loan term. For example, if you seek to borrow £10,000 over the course of 3 years, this is what you need to enter. Take note, although the loan provider might approve your application, they could still offer you less than what you initially applied for.

    Step 3: Enter your personal and financial information

    Once you get to the main application phase, you will be asked a plethora of questions about your identity, as well as your current financial standing. Regarding the former, this will include your name, address, date of birth, driver’s license number, and contact details. When it comes to your financial standing, you will initially need to provide information about your income.

    On top of your annual salary, you will also need to enter the name and address of your employer, your employment status (full-time, part-time, etc.), and the frequency at which you receive your wages. The cheap loan provider will also need to be made aware of any other debt obligations that you currently have outstanding. This includes the name of the debt provider, as well as an estimation of the amount currently owed.

    Step 4: View your pre-approval rates

    If your cheap loan application was successful, you should receive an instant decision on-screen in less than 60 seconds. As such, you should now be able to view your loan terms. This will include the APR rate that the lender is happy to offer you, and when you will be required to make your repayments. The loan agreement will also list other charges – if applicable, such as an origination fee and any respective late/missed payment charges.

    If you’re happy with the terms offered to you, simply sign the loan agreement and proceed to the next step. On the other hand, if your application was unsuccessful, this will be the end of the process. You should be careful not to make too many applications with other lenders at this point, as this will be marked down by the main three credit bureaus.

    Note: An origination fee is sometimes charged by lenders as a means to cover the costs of arranging the loan. If the lender does charge an origination fee, this can vary from 0.5% to 5%.

    Step 5: Enter your bank account details & set-up a direct debit agreement

    Once you have signed your digital loan agreement, there is one more stage to the application that needs to be completed before the lender transfers the funds. Firstly, you will need to enter your bank account details. This is the account that you wish the lender to transfer the loan funds into. Secondly, you will also need to set-up a direct debit agreement via the same bank provider. This is so the lender can take your monthly repayments automatically. This will be for the same amount every month, on the same date.

    How long before I receive the funds?: As soon as you complete the above steps, and your loan is subsequently approved, lenders will typically transfer the funds into your stated bank account within 1-2 working days.

    Best 3 cheap loan providers

    If you’re looking for a loan with the lowest rate of interest possible, then you will need to meet some minimum eligibility requirements. In its most basic form, this will include a good or excellent credit score, a history of always repaying your debts back on time, and a reasonably good annual income. Other metrics – such as being a homeowner or having a vehicle registered in your name, with further help you to obtain a cheap loan with very competitive APR rates.

    With that being said, we have listed the very best cheap loan providers currently active in the UK lending scene. Before you begin perusing through our recommended lenders, be sure to assess the criteria we typically look for in a loan provider.

    Criteria used to rank the best cheap loan providers

    ❓Lenders with the most competitive interest rates

    ❓How much the lender is able to offer

    ❓What credit score you need to obtain the personal loan

    ❓What loan terms are available

    ❓What the late payment and missed payment process is

    1. HSBC – Best if your credit score is excellent

    If you are currently in possession of an excellent credit score, then you stand a very good chance of obtaining an HSBC personal loan at super competitive rates. In fact, the lender is able to facilitate loans from just 3.3% APR, which offers tremendous value. As noted earlier, your financial standing will need to be in a very good position to get this rate. Anything less and you will likely pay more. You have the option of borrowing from just £1,000, up to a maximum of £25,000. Moreover, you can borrow the funds at a minimum term of 12 months, up to a maximum of 5 years.

    As is standard in the online lending space, the longer that you borrow the money for, the higher the APR is likely to be. What we also like about the cheap loans currently being offered by HSBC is that you will not be penalized for making overpayments. This allows you to pay your loan off early and thus – reduce the overall interest amount that you end up paying.

    Key Points:

    ? Personal loans of between £1,000 and £25,000

    ? Advertised APR interest rate of 3.3%

    ? Loan terms of between 12 months and 5 years

    ? No financial penalty for making overpayments

    ? Perfect for those an excellent credit score

    2. Admiral – Very competitive APR rates for loans of less than £25,000

    Much like in the case of HSBC, Admiral is also offering some amazing rates on its personal loans. Once again, you will be required to have an excellent credit score, as well as a good track record when it comes to repaying your debts. Moreover, Admiral will also require you to have a minimum income of £10,000 per year, although this is judged on a case-by-case basis. Nevertheless, if you meet the required credentials, then you can obtain a cheap loan at just 3.9% APR.

    In order to get this rate, you will need to be borrowing the full £25,000. If you don’t need this much, then you’ll pay a slightly higher rate. You can borrow the funds from Admiral for a minimum term of 12 months, up to a maximum of 5 years. Finally, you can complete the entire loan application via the Admiral desktop or mobile website, and you should receive an instant decision once you supply the required information.

    Key Points:

    ? Personal loans of up to £25,000

    ? Best rate of 3.9% APR on loans of £25,000

    ? Maximum loan term of 5 years

    ? Is a direct lender

    ? Perfect for those with an excellent credit profile

    3. Sainsbury's Bank – Best APR rates for loans of £25,000 or more

    If you are looking for a cheap loan of significant size – and the £25,000 being offered by both HSBC and Admiral doesn’t quite cover what you need, then we would suggest checking to see what Sainsbury’s Bank can offer you. In a nutshell, the lender offers its best rates for those that borrow between £25,000 and £40,000 – which, of course, is a huge financial obligation. However, if do you have the financial means to take the loan out, you can obtain a headline rate of 6.7% APR. While this is much higher than the other two cheap loan providers we have discussed thus far, you need to remember that larger loan sizes will always attract a higher rate of interest.

    This is because it presents a greater risk to the lender and thus – they need to offset the risks with a higher APR rate. We also like the fact that Sainsbury’s Bank offers a range of loan terms for you to choose from. In order to get the best rate, you will need to take a loan term of 5 years. If you need slightly longer, the next best rate can be found when you opt for 7 years. Finally, the lender gives you a bit of breathing room when you first take out the loan, as your first payment won’t be due until two months after you receive the funds.

    Key Points:

    ? Personal loans of up to £40,000

    ? Best rate of 6.7% APR on loans of £40,000 over 5 years

    ? Maximum loan term of 7 years

    ? Is a direct lender

    ? Perfect for those with an excellent credit profile

    Am I eligible for a Cheap Loan?

    As we have noted throughout our guide, cheap loans are typically reserved for those that are in possession of an excellent credit score, and a historical record of always meet their debt obligations on time. On the contrary, if you have a track record of missing loan repayments, or your credit score is less than ideal, then you likely won’t benefit from competitive interest rates.

    As there are a number of key variables that lenders typically look at when assessing how much interest to charge you, check out the following list.

    ✔️ Credit Score: In order to qualify for the very best loan deals in the UK, you will need to have a good or excellent credit score. In fact, lenders have the capacity to pull this up with ease, so it’s usually the first thing that they will look at. If you have previously fallen behind on debt obligations, or you are still somewhat new to credit, then you probably won’t have a high enough credit score to get a cheap loan.

    ✔️ Annual Income: The cheapest loan deals are also reserved for those with a good level of income. While lenders such as Admiral might state that you only need to be earning £10,000 per year to qualify for a loan, it is highly unlikely that you will benefit from their top APR rates unless you are making significantly more than this. Don’t forget, your specific APR rates are based on the lender’s perceived risk levels, so a higher income illustrates that you can afford to meet your repayments.

    ✔️ Other Debts: Just because you have a good or excellent credit score – alongside an above-average annual income, this doesn’t mean that you are guaranteed to get the best loan deals. Instead, lenders will also need to look at what other debt obligations you currently have outstanding. For example, if you are currently holding heaps of credit cards, alongside a number of other loans and a mortgage, the lender might ascertain that your debt levels are too high. As such, they will either charge you a higher rate of interest to reflect the increased debt levels, or simply reject the application outright.

    ✔️ Previous Credit: Finally – and perhaps most importantly, the lender will also extract information from your credit report to assess what your historical relationship with debt looks like. Ideally, you will have never been late for a repayment, nor have you ever had a debt obligation run into default. If this sounds like you, then you stand the best chance possible of getting a cheap loan. On the contrary, if you have a checkered past with repaying debt, you likely won’t qualify for a competitive APR rate

    What happens if I fall behind on my cheap loan repayments?

    First and foremost, if you are able to obtain a cheap loan at the most competitive APR rate offered by the lender in question, then this would indicate that you are currently in possession of a healthy credit profile. However, life has a funny way of throwing the unexpected at us – meaning that there is always the chance that you could fall behind on your repayments. If you do, then there is likely to be a number of consequences that you need to make considerations for.

    Late Payment

    If you are late on a single loan repayment, then initially, you will be given the chance to cover the short-fall without it having a negative impact on you. For example, let’s say that your cheap loan agreement comes with a monthly repayment date of the 7th, at a fixed amount of £278. If there was a problem taking the payment from your bank account on the 7th, but you made a manual payment a couple of days later, then your account should be put back in good standing – with the matter now resolved.

    Missed Payment

    Sticking with the same example as above, if you fail to cover the late payment in quick fashion, then you stand the chance of your late payment turning into a missed payment. If it does, then you will likely have issues on two fronts. Firstly, the lender will likely report the missed payment to one, or all of the main three credit bureaus. In doing so, the missed payment will remain on your credit report, meaning that your score will likely be marked down. Secondly, you will likely be hit with a missed payment fee. You will also need to pay interest on this fee.

    Default 

    If your missed payment turns into multiple missed payments, then you face the very serious risk of seeing your account go into default. In layman terms, this means that the lender will likely stop chasing you for payment, and instead, proceed with legal action. If you have obtained a secured loan to get the cheapest rate possible, this means that the underlying asset is likely to be seized.

    FAQ

    What is a cheap loan?

    A cheap loan refers to a loan that comes with a very low rate of interest. In fact, the APR rate is likely to be the lowest rate that the lender is able to offer.

    What credit score do I need to get a cheap loan?

    If you're looking to get industry-leading interest rates on your loan, then you will likely need to have at least a 'good' credit score. Some lenders go one step further, subsequently requiring you to sit within the 'excellent' threshold.

    Do I need to obtain a secured loan to get the cheapest rates?

    What is the lowest interest rate that I can get on a cheap loan?

    This depends on a number of key factors, such as how much you borrow and for how long, as well as your current financial standing. However, if opting for a conventional personal loan, you should be able to get your APR rate down to the 3 - 3.5% mark.

    Kane Pepi

    Kane holds academic qualifications in the finance and financial investigation fields. With a passion for all-things finance, he currently writes for a number of online publications.